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Crude Oil: Could Prices Surge Above $80 by Next Quarter?

Published 02/07/2024, 03:32 AM
Updated 05/27/2024, 01:10 PM

On Tuesday, WTI Oil Futures rose to $73.50 a barrel, highlighting rising tension in the Middle East and concerns that this could disrupt oil supplies from the region. This was caused by the continued increase in U.S. strikes against Iran-backed militias over the weekend. However, U.S. officials have made it clear that they do not seek a broader confrontation in the region.

Last week, oil prices suffered heavy losses due to progress in ceasefire negotiations between Israel and Hamas, which significantly reduced supply risks in the Middle East. Although expectations of an immediate interest rate cut by the U.S. Federal Reserve have diminished and concerns about China's economic recovery persist, there have been no immediate supply disruptions.

One of the most effective ways to understand the possible future of oil prices is to examine the structure of the futures curve. At the time of writing this article, the oil price for delivery in March 2024 is $73.02 per barrel, while the price for delivery in June 2024 is $72.50 per barrel. This could indicate a slight increase or stability in prices in the coming years, but of course, there can be many variables affecting the oil market.

We are experiencing backwardation. This phenomenon discourages conservation and instead promotes immediate delivery: why hold oil until March 2024 to sell it at a lower price than it is now on the open market? Backwardation usually indicates a greater balance between oil supply and demand, acting as a positive push on prices.

The oil market seems to have a good outlook for the bullish. The EIA recently revised future oil production downward, forecasting a significant decrease in U.S. production in the first quarter of 2024. Instead of the previous 12.8-12.9 million barrels per day, it now estimates an average closer to 12.7-12.8 million barrels per day, with growth already steady at ~12.9 million barrels per day in December.
Crude Oil Daily Chart

Oil producers are also reporting a pause in production. U.S. shale oil producers' forecasts indicate a trend toward flat growth, almost completely disappearing. This means that with fewer resources to carry out drilling, the oil produced will decrease more and more.

In the future, we expect lower oil production and a possible surprise in demand, especially if the stimulus in China is successful.

China is one of the largest consumers of oil in the world.

When their market fully recovers, we expect an increase in demand that could cause a supply shortage and thus a surge in oil prices.

Currently, the situation from a technical point of view is negative.

Prices are below the 100-day moving average, in the area at 76.

The latest decline in oil prices was accompanied by an increase in volumes, which further strengthened the downward trend.

However, My projection for the next quarter is that oil prices will reach $80 per barrel.

Don't miss my next article, where I will discuss the current situation in the natural gas market.

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